Hu Jintao’s U.S. Visit: Talks on Currency, Nuclear Iran

After months of mounting tension, the leaders of the U.S. and China appear to be putting recent strains in their relationship behind them. China’s Foreign Ministry announced on Thursday, April 1, that President Hu Jintao would attend the global nuclear-security summit in Washington on April 12 and 13. Hours later, Hu and President Obama spoke for an hour by phone. Considerable differences on a wide range of issues are unlikely to be easily resolved, but Washington and Beijing may be moving to manage those differences in a more cooperative fashion.

President Hu Jintao

Hu’s attendance at the nuclear summit had been in doubt following Obama’s January decision to approve the sale of $6.4 billion in arms to Taiwan, which China considers part of its territory. A month later, Obama met with the Dalai Lama, the exiled Tibetan spiritual leader accused by Chinese leaders of seeking Tibetan independence. In the span of a few weeks, the U.S. had prodded China on two of its most sensitive issues, prompting an angry backlash, including a suspension of some high-level military exchanges. Beijing also refused to even discuss U.S. proposals for new sanctions against Iran over its nuclear program.

Bilateral ties had already been strained by China’s reluctance to seek a deal on climate change during the Copenhagen conference in December. Then came last month’s decision by U.S. Internet giant Google to shutter the censored search engine it ran in China and instead funnel mainland searches to an unfiltered site in Hong Kong. And all of this was underscored by growing tension over currency issues between the two key players in the world economy.

China’s latest moves, however, hint that it hopes to tamp down tensions. “Things certainly stopped getting worse,” says Jin Canrong, a professor and deputy director of the School of International Studies at Renmin University in Beijing. “I would say the relationship between China and the U.S. is becoming stable, but in order to get better, both of them have to work harder.”

Hu’s visit to Washington will come just days before an April 15 deadline for U.S. Treasury Secretary Timothy Geithner to issue a semiannual report that could label China a currency manipulator. China’s currency, the renminbi, has been pegged to the dollar, and many economists say it is undervalued, giving Chinese exporters an advantage over their competitors in the U.S. and elsewhere. Some U.S. lawmakers have been pushing Geithner to declare China a manipulator, which would force talks between the two sides and the International Monetary Fund and could create momentum for Washington to adopt protectionist measures.

Analysts predict that the Chinese President’s decision to go to Washington will make the U.S. less inclined to adopt a confrontational stance on China’s currency policy. “If April 15 comes and goes without a report, I don’t think I’d be surprised,” says Stephen Green, head of China research at Standard Chartered Bank in Shanghai. During their phone conversation Thursday, Hu told Obama that “healthy and stable economic and trade relations between China and the United States serve the interests of both countries,” according to the state-run Xinhua News Agency. The report didn’t say whether the two leaders had discussed China’s currency.

While expectations are low for any sudden jump in the value of the renminbi, the recent dÃ‰tente could make it easier for China to begin gradual changes. China’s leadership was never likely to make any move on currency in the face of overt pressure from Washington, for fear of appearing weak in the eyes of its people. “Our view is that China was going to move around the middle of the year,” says Green. “The China timetable was six months behind the U.S. on this, which creates tension. The tension makes a move harder. What we need now is to dial down the tension, which creates space for a move [on currency] which will be slow and gradual.”

During Thursday’s phone call, Hu raised China’s concerns about Taiwan and Tibet, Xinhua reported. “Taiwan and Dalai are two issues that China will always mention in occasions like this, but I don’t think China will expect any constructive replies from the U.S.,” says Jin. “I think China will mention those two issues just to declare their position.”

But while Hu can’t expect to win much in the way of U.S. concessions on Taiwan and Tibet, his trip to the U.S. could prove valuable on other fronts. China has traditionally stood on the sidelines of major international gatherings of political leaders, in keeping with the dictum of former leader Deng Xiaoping that the Chinese should “disguise their ambitions and hide their claws.” As a result, Chinese economic clout now outweighs its diplomatic leverage and soft power. “China has been reluctant to be put in the traditional order,” says Xingdong Chen, the chief China economist for BNP Paribas Securities. “Now they are building a new order, and China needs to take part in the rule building. If China stays away, it won’t be part of the international community.”

In Washington, Obama will also be looking for China’s help to curtail Iran’s nuclear program. So far, Beijing has been reluctant to support tough sanctions and has repeatedly urged more patience to allow for diplomatic overtures. Saeed Jalili, Iran’s top nuclear negotiator, spent Thursday in Beijing meeting with Chinese officials including Foreign Minister Yang Jiechi and State Councillor Dai Bingguo. A Chinese Foreign Ministry spokesman said Thursday that China “is striving for a proper settlement of the issue through diplomatic means,” Xinhua reported. The message is that Hu Jintao may be willing to go to Washington, but China will shift its policies only so far.